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  • DISRUPTIVE INNOVATION

    What Is Disruptive Innovation?by Clayton M. Christensen, Michael E. Raynor, and Rory McDonald

    FROM THE DECEMBER 2015 ISSUE

    The theory of disruptive innovation, introduced in these pages in 1995, has proved to be apowerful way of thinking about innovation-driven growth. Many leaders of small,entrepreneurial companies praise it as their guiding star; so do many executives at large,well-established organizations, including Intel, Southern New Hampshire University, and

    Salesforce.com.

    Unfortunately, disruption theory is in danger of becoming a victim of its own success. Despite broad

    dissemination, the theorys core concepts have been widely misunderstood and its basic tenets

    frequently misapplied. Furthermore, essential refinements in the theory over the past 20 years

    appear to have been overshadowed by the popularity of the initial formulation. As a result, the

    theory is sometimes criticized for shortcomings that have already been addressed.

    https://hbr.org/topic/disruptive-innovationhttps://hbr.org/search?term=clayton+m.+christensenhttps://hbr.org/search?term=michael+e.+raynorhttps://hbr.org/search?term=rory+mcdonaldhttps://hbr.org/1995/01/disruptive-technologies-catching-the-wavehttps://hbr.org/

  • JUST FOR SUBSCRIBERS

    The Ubiquitous Disruptive InnovationDISRUPTIVE INNOVATION VISUAL by Clayton M. Christensen ,Michael E. Raynor , and Rory McDonald

    Theres another troubling concern: In our experience, too many people who speak of disruption

    have not read a serious book or article on the subject. Too frequently, they use the term loosely to

    invoke the concept of innovation in support of whatever it is they wish to do. Many researchers,

    writers, and consultants use disruptive innovation to describe any situation in which an industry

    is shaken up and previously successful incumbents stumble. But thats much too broad a usage.

    The problem with conflating a disruptive

    innovation with any breakthrough that changes

    an industrys competitive patterns is that

    different types of innovation require different

    strategic approaches. To put it another way, the

    lessons weve learned about succeeding as a

    disruptive innovator (or defending against a

    disruptive challenger) will not apply to every

    company in a shifting market. If we get sloppy

    with our labels or fail to integrate insights from

    subsequent research and experience into the

    original theory, then managers may end up using

    the wrong tools for their context, reducing their chances of success. Over time, the theorys

    usefulness will be undermined.

    This article is part of an effort to capture the state of the art. We begin by exploring the basic tenets

    of disruptive innovation and examining whether they apply to Uber. Then we point out some

    common pitfalls in the theorys application, how these arise, and why correctly using the theory

    matters. We go on to trace major turning points in the evolution of our thinking and make the case

    that what we have learned allows us to more accurately predict which businesses will grow.

    https://hbr.org/visual-library/2015/12/the-ubiquitous-disruptive-innovation

  • First, a quick recap of the idea: Disruption describes a process whereby a smaller company with

    fewer resources is able to successfully challenge established incumbent businesses. Specifically, as

    incumbents focus on improving their products and services for their most demanding (and usually

    most profitable) customers, they exceed the needs of some segments and ignore the needs of others.

    Entrants that prove disruptive begin by successfully targeting those overlooked segments, gaining a

    foothold by delivering more-suitable functionalityfrequently at a lower price. Incumbents, chasing

    higher profitability in more-demanding segments, tend not to respond vigorously. Entrants then

    move upmarket, delivering the performance that incumbents mainstream customers require, while

    preserving the advantages that drove their early success. When mainstream customers start

    adopting the entrants offerings in volume, disruption has occurred.

    PLAY 2:08

  • Find this and other HBR graphics in our VISUAL LIBRARY

    Is Uber a Disruptive Innovation?

    Lets consider Uber, the much-feted transportation company whose mobile application connects

    consumers who need rides with drivers who are willing to provide them. Founded in 2009, the

    company has enjoyed fantastic growth (it operates in hundreds of cities in 60 countries and is still

    expanding). It has reported tremendous financial success (the most recent funding round implies an

    enterprise value in the vicinity of $50 billion). And it has spawned a slew of imitators (other start-

    ups are trying to emulate its market-making business model). Uber is clearly transforming the taxi

    business in the United States. But is it disrupting the taxi business?

    https://hbr.org/visual-library/1995/01/disruptive-innovation

  • According to the theory, the answer is no. Ubers financial and strategic achievements do not qualify

    the company as genuinely disruptivealthough the company is almost always described that way.

    Here are two reasons why the label doesnt fit.

    Disruptive innovations originate in low-end or new-market footholds.

    Disruptive innovations are made possible because they get started in two types of markets that

    incumbents overlook. Low-end footholds exist because incumbents typically try to provide their

    most profitable and demanding customers with ever-improving products and services, and they pay

    less attention to less-demanding customers. In fact, incumbents offerings often overshoot the

    performance requirements of the latter. This opens the door to a disrupter focused (at first) on

    providing those low-end customers with a good enough product.

    In the case of new-market footholds, disrupters create a market where none existed. Put simply, they

    find a way to turn nonconsumers into consumers. For example, in the early days of photocopying

    technology, Xerox targeted large corporations and charged high prices in order to provide the

    performance that those customers required. School librarians, bowling-league operators, and other

    small customers, priced out of the market, made do with carbon paper or mimeograph machines.

    Then in the late 1970s, new challengers introduced personal copiers, offering an affordable solution

    to individuals and small organizationsand a new market was created. From this relatively modest

    beginning, personal photocopier makers gradually built a major position in the mainstream

    photocopier market that Xerox valued.

    A disruptive innovation, by definition, starts from one of those two footholds. But Uber did not

    originate in either one. It is difficult to claim that the company found a low-end opportunity: That

    would have meant taxi service providers had overshot the needs of a material number of customers

    by making cabs too plentiful, too easy to use, and too clean. Neither did Uber primarily target

    nonconsumerspeople who found the existing alternatives so expensive or inconvenient that they

    took public transit or drove themselves instead: Uber was launched in San Francisco (a well-served

    taxi market), and Ubers customers were generally people already in the habit of hiring rides.

    Uber has quite arguably been increasing total demandthats what happens when you develop a

    better, less-expensive solution to a widespread customer need. But disrupters start by appealing to

    low-end or unserved consumers and then migrate to the mainstream market. Uber has gone in

  • exactly the opposite direction: building a position in the mainstream market first and subsequently

    appealing to historically overlooked segments.

    Disruptive innovations dont catch on with mainstream customers until qualitycatches up to their standards.

    Disruption theory differentiates disruptive innovations from what are called sustaining

    innovations. The latter make good products better in the eyes of an incumbents existing

    customers: the fifth blade in a razor, the clearer TV picture, better mobile phone reception. These

    improvements can be incremental advances or major breakthroughs, but they all enable firms to sell

    more products to their most profitable customers.

    Disruptive innovations, on the other hand, are initially considered inferior by most of an

    incumbents customers. Typically, customers are not willing to switch to the new offering merely

    because it is less expensive. Instead, they wait until its quality rises enough to satisfy them. Once

    thats happened, they adopt the new product and happily accept its lower price. (This is how

    disruption drives prices down in a market.)

    Most of the elements of Ubers strategy seem to be sustaining innovations. Ubers service has rarely

    been described as inferior to existing taxis; in fact, many would say it is better. Booking a ride

    requires just a few taps on a smartphone; payment is cashless and convenient; and passengers can

    rate their rides afterward, which helps ensure high standards. Furthermore, Uber delivers service

    reliably and punctually, and its pricing is usually competitive with (or lower than) that of established

    taxi services. And as is typical when incumbents face threats from sustaining innovations, many of

    the taxi companies are motivated to respond. They are deploying competitive technologies, such as

    hailing apps, and contest

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